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What are the reasons to try the Subscription Business Model (and how to do it)

May 9, 2023

A lot of artists have begun changing from a one-time pricing model to a subscription-based pricing structure. This is due to a simple reason this: the subscription-based payment system lets them generate regular revenue.

Just look at successful creator of Sew it! Academy Mimi Goodwin as an example.

A typical one-time sales conversion rate in all sectors is between 2.35 percent and 5.31 percentage. That means if you start an online course that has an upfront price structure, less than five percent of your customers will buy it. Initial revenue might seem as a huge amount initially however, there's no way to determine how much you'll be able to make in the subsequent month, especially in the event that traffic to your sales page is sporadic.

If you choose to use an alternative business model that relies on subscriptions, the initial payout may be lower, but you'll have the ability to forecast how much money you'll make over the next few months. Instead of looking to attract new clients, you could work on improving your existing online courses for learners.

This enhances your students' satisfaction, builds their loyalty as well as entices them promote your courseand, consequently, leads to more subscribers.

Find out:

What's a subscription business model?

A subscription business model is one where customers have to pay a daily, monthly, or annual fee to get access to your service or product. Based on the period they select, customers can periodically renew their subscription the duration of utilising your service.

The benefits of subscription-based models are for the course creator and the customer. For course creators (and business owner) you are able to leverage your existing customer relationships to generate predictable revenue. This lets you continue investing in your business and stops you from over-saturating your customers with your content too frequently. If you're a student, you'll have the option of cancelling your membership at any time you want, without spending as much money as it would have been if you'd purchased upfront.

If you are able to provide the ideal product/service in the right sector, a subscription is a profitable way of generating income.

How does a subscriber business model work?

The mechanics of the subscription model for business is simple.

Customers are charged regularly for the product or service you offer and give them the option to pay for or cancel the service at any time. Customers decide the length of time and frequency they want to pay for the offer. As long as a customer is able to keep renewing their monthly payments (usually using a debit or credit card) then the offer remains accessible to the customer. But once they fail to renew their account, they will be denied the access instantly.

The business model of subscription was introduced in the early 17th century by publishers of periodicals and newspapers. With the advancement of technology, many websites, businesses, and software-as-a-service (SaaS) platforms use this business model.

Some of the most popular businesses that bill their clients for subscriptions include Netflix, Microsoft, and Spotify as well as Microsoft and Spotify. They are reaping the rewards of this model for years. The good news is, the business model doesn't have to be limited to huge corporations. It's possible to use it to create the creation of your own products, too.

Benefits of a subscription business model

Subscription-based business models have tons of advantages. Here are five of them:

    Predictable revenue stream    

One of the appealing aspects of a subscription business structure is that it is easier to forecast how much revenue your company will earn each month (or the entire year). As your customers make payments repeatedly, you'll know how much they'll have to pay as well as the precise moment they'll need to renew their payments.

If you take into account your churn rate and your churn rate, you'll be able determine your monthly recurring income (MRR) nearly precisely.

For example: Say that you have a 7 percent turnover rate, and you have 2,500 students enrolling in your program for a fee of $20 per month. If you don't get new students in the next month, you'll still earn at least $40,000.

The longer the time your program is going, the more you'll be able predict how many customers you gain and lose in a given amount of time. This makes it easier to determine your MRR and annual recurring revenue (ARR).

    More effective Customer Acquisition    

Say, you earn an average of $2,000 per month through your part-time job as a barista and you're seeking to improve your skills by enrolling in a project management course. The most effective one that you can find has two pricing structures that include $1,000 as a one-time payment, and $70 per month. Which pricing structure seems more practical for you right now?

The money I earn is on my monthly payment for the subscription.

Sometimes, the cost of a product may seem too costly for potential buyers. Breaking down the price into weekly, monthly or annual installments makes your product less expensive, and helps prospects incorporate it in their budget. So, more individuals who are able to afford paying per month are likely to convert and sign up into your program.

    Lower customer retention spends    

As your students continue to pay to attend your class so you do not have to reserve as much funds to reach them like you would have when your class was based on an all-in-one pricing system. And because they renew their payments, it is possible to conclude that they are in a permanent relationship with the course. That makes it more difficult to lose them which means you don't need to invest a significant amount of money to retain them.

    Stronger customer relationships    

In a single-payment structure that allows customers to pay one time for your course and that's it. With the exception of a handful who may contact you to inform you about the progress they've made, most will likely not interact with your company much.

A subscription business model, however, allows customers to have access to you (and in turn) for as long as possible. When your customer service team is always there answering your students' queries and helping them solve their issues, the students will grow to trust your brand. This will greatly influence the decision of whether or stop their membership.

    Opportunities for upselling and cross-selling    

In 1968, the social psychotherapist Robert Zajonc devised the mere exposure theory, which says that when a person has been exposed repeatedly to the same stimulus, they form more positive attitudes towards the stimulus.

In business, this means that the longer your customers are able to access your products and services, the more comfortable you'll appear to your customers. When this happens, your customers will be more likely to buy other items or services you have to offer.

Cross-selling is the process of adding complementary offers to an existing offer with a price that is higher. For example, if you only offered your online course at $25/month then you can add your exclusive membership program to it and then offer it for $35/month.

By upselling, you're entice current customers to purchase an item that is priced higher. If you're selling the course for just $25/month you could market your related and higher priced course for students to $30 per month.

The new customer might prefer not to choose the more expensive option right away, but someone who's signed up to your course for 6 months will likely increase their subscription (or purchase the more expensive course) since they're aware of what value you can provide with your program.

How to move to a subscription business model

If you're thinking of the use of a subscription model to sell your product, there are six actions you must take:

    Determine if your business is a suitable match for this price structure.    

Prior to establishing an underlying subscription-based pricing model for your business, figure out if it's the right pricing structure for your company. For example, if the product you offer clients require continuous access to for example, an online fitness course or online boot camp then a subscription business model will work great for you. If it's only a once-off program, it won't be a great fit.

If you're certain that a subscription business model will make sense for your service, proceed to your next steps.

    Make realistic objectives to your subscription-based enterprise    

What you hope to accomplish through your company will determine the price points and tiers you set. Before you decide on prices consider what I would like to accomplish with a subscription business model?

Do you want faster growth, or higher revenue? Or is it better retention and acquisition of customers?

Not only will your goals help you set prices that'll help you attract your ideal clients, but they'll also influence the tone of your site/sales page content.

    Choose a subscription pricing strategy    

Now, it's time for the exciting part: designing your subscription plans.

If you're just trying out the subscription-based pricing model for the first time then you should keep it straightforward by making at least two or three packages. As you measure your conversions and get feedback from your customers, you'll be able to create additional pricing levels that meet their needs.

For that be aware of the following factors:

  • Your method of communicating your product's value to your subscribers
  • The industry standards
  • The pricing incentives on your packages

To know where to start, look at the packages the competition offers. The goal is to make your offerings more attractive to the people you want to target.

For example, if you're teaching Pilates to parents with new children then you can look at the pricing packages of other Pilates courses on the web. If you discover that prices range from $20/month up to $60 per month, you could use this as your baseline.

The attractiveness of your packaging does not necessarily mean you should price your products lower than rivals. There is a possibility that you could charge the same price bracket, however you provide slightly higher incentives or perks. It's possible to charge a bit higher than your competitors if you're offering perks that aren't.

The main point is that your clients should examine your pricing options and think that when they deal with you, that they'll receive the most value for their money.

    Make it easy for potential customers to sign-up    

A subscription package should be easy and simple. It isn't a good idea for your prospective customers to be confused about how to sign up after they visit your site. You also don't want users to be wasting 30 to 60 minutes trying to navigate your sign-up form.

Include a hyperlink to your pricing page in the navigation menu on your site so that visitors can easily find it. Your pricing page should include your subscription packages and their pricing should be listed clearly in a language your audience will understand.

Finally, include ways for subscribers to update their billing information and change or cancel plan of subscription.

    Expand your business using the right technology    

As the goal is to collect recurring payment from clients, you need to ensure that your subscription billing system is supported by the appropriate tools to accept and process those transactions.

If you frequently send a large number of items to clients at the same time using a bulk delivery service, it can help streamline the shipping process as well as reduce the cost.

    Offer exceptional customer service    

Your website should include several ways for prospects and customers to reach the customer support team if they have questions or encounter issues. Some contact options include chatbot or live chat, emails or telephone calls.

The ease with which customers are able to contact your support staff and the quality of support they receive may very well decide if they'll continue the subscription or not. So you need to ensure that you're offering the top possible customer support to your base and forging relationships with the people they interact with.

Some examples of websites which use a subscription-based business model

Subscription business models are employed in various ways by businesses across several areas. Below are five organizations who have found success using an arrangement of pricing based on subscription.

    Online courses - Copy School    

Copy School is a robust online course that teaches people how to write all types of strategically written copy- including copy for websites, social media advertising, and email -which is for businesses. The course is rigorous and has produced amazing copywriters who work with large corporations and are earning high-end money.

Due to this, the price for Copy School is expensive -- $3,997 one-time payment for unlimited access (or 1.998 once-off payment for the ad-supported course). However, Copy School has two subscription packages that make it easier for their customers to pay for it -- $348/month (ad-supported) or $697/month for 6 months.

    Streaming platforms Netflix    

When it first launched on the market, Netflix initially was an online rental platform for DVD's. But with the emergence of smartphones, broadband internet and smart TVs, Netflix was rebranded as an online video-on-demand (VOD) streaming platform. Today, it's an online streaming service that lets users watch television and movies on connected devices via the internet.

Netflix's pricing plans vary between $6.99 from $6.99 to $19.99. The plans you select depend on video quality and the number of devices the subscriber wants to join to one account.

    Software-as-a-service platforms -    

    Memberships ClassPass ClassPass    

ClassPass is a membership program that caters to fitness and beauty lovers. By acquiring an ClassPass membership, members can book classes and appointments at top-rated gyms, studios, salons, and spas across the globe. ClassPass' subscription packages range from $19 per month (for eight credits) and $159 per month (for 80 credits). ).

    Physical items - BirchBox    

Birchbox provides its customers with boxes with two to six products for beauty each month. Each beauty box is customized by a test the customer takes at the beginning. This arrangement allows the customer to test different items, since the same item is not sent two times.

When a customer is able to find a good product, they can buy it from the website of BirchBox. The monthly subscription starts at $13/month and there are discounts for 6-month, 3-month and 12-month subscriptions.

Enhance your income with a subscription business model

In subscription-based companies it isn't enough to set random prices and expect customers to sign up. It's up to you to do the work. Your customers will only upgrade their plans when they are satisfied that they're getting the most value from their dollars.

To provide value to your customers You'll have to get close to your target audience, speak with them about their concerns as well as offer them tried and tested solutions. This is the only way to assign the price of your service that people will be happy to sign up to.